April 5, 2017 / 5:09 PM / 4 months ago

LPC-European leveraged loan pricing on the rise

4 Min Read

LONDON, April 5 (Reuters) - Pricing in Europe's leveraged loan market is rising after investor pushback on recent deals that were deemed too tightly priced, banking sources said.

Arranging banks are offering around 25bp-50bp more in order to create more investor appetite, illustrated by the €859m financing backing Ardian’s buyout of a majority stake in French food group Prosol that has just launched to syndication. BNP Paribas, Credit Agricole and Natixis have underwritten Prosol's financing, which includes a €759m covenant-lite term loan B, guided to pay 400bp over Euribor with a 0% floor and a 99.5 OID.

The pricing is seen as generous in a market where deals have been regularly coming with a three handle.

“It felt like the market went down to 300bp with unseemly haste and it has clearly pulled back from there but the market is constructive and still has appetite. Primary credits feel like they should be in the 350bp-375bp context,” a senior banker said.

The increase in pricing followed deals last month for European medical laboratory services operator Cerba Healthcare and Swiss medical diagnostics company Unilabs that both carried a margin of 300bp over Euribor and suffered in Europe's secondary loan market after freeing to trade on March 22.

Prosol was initially shown to earlybirds at 375bp over Euribor, two of the sources said.

“Pricing on Prosol reflects the market today, which has widened a bit of late. There is €759m of money to be raised on a new deal with no existing lender base. If there is a lot of demand, which there is likely to be, then it could get reverse flexed but in this market it is better to be cautious and build a book first before worrying about the price,” a second senior banker said.

Since Cerba and Unilabs, bankers are reluctant to squeeze pricing too tight, even on the repricings of existing deals, for fear of losing a significant portion of a deal’s investor base.

Dutch trust funds company TMF Group is looking to cut the margin on its €660m term loan to 350bp-375bp over Euribor with a 0% floor, from 400bp with a 0% floor, while chemicals company Inovyn is repricing to 275bp-300bp with a 0.75% floor on a €692m term loan that currently pays 350bp with a 1% floor.

“TMF would have launched at 325bp-350bp a few weeks ago,” a third senior banker said.

Fed Up

Despite a large number of deals in Europe’s leveraged loan market, there is a sense that some investors have become disillusioned with the slew of repricings that have dominated the market and pulverised yield.

In the background bankers are working on a number of new potential buyouts, including some public-to-privates, which could hit the market shortly.

“Parts of the market have gone on holiday. Everyone has had enough and they are likely to come back in May to do some business, after the French elections,” the second banker said.

Prosol’s financing also comprises a €100m revolving credit facility, guided to pay 375bp over Euribor. The underwriting backs have fully committed to this and will not be selling it down.

The financing will equate to just under 6 times Prosol’s approximate €130m Ebitda.

Editing by Christopher Mangham

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